Posts Tagged ‘buyers’

Many agents and home buyers are aware of the current shortage of homes for sale in many areas. In California there is currently a 4 month supply of homes, where 6 months is the norm and heading into the Spring it usually is higher. When desirable listings do come onto the market there is a rush of activity and often a quick sale. What will happen to the normally busy Spring selling season if inventory levels do not grow?Â

With interest rates still low and inventory levels down, it is more important than ever for buyers to be as prepared as possible to write a successful offer. Before buyers even start looking at homes, it is important to make sure to do the following:

1. Get preapproved. This is essential. You need to speak with a mortgage professional and get preapproved – not just prequalified – so that you know exactly how much of a loan you can afford and what you will need for a downpayment. There are different products out there so make sure you know which loans will work best for your circumstances. Talk to a qualified mortgage professional and get the preapproval letter before you start home shopping so you are ready to make an offer.

2. Find a good real estate agent. It is great to look at homes yourself online – in fact I always encourage doing so – but to have a skilled agent on your side provides you with an edge. Local area agents often hear of listings before they hit the market, or may even have “pocket” listings (contracted upcoming listings that are not yet on the MLS) themselves. Also, when a listing is on the MLS there may be important confidential agent remarks listed (that only MLS subscribers can see) that could help you prepare in writing an offer. Finally, some third party real estate sites do not list new properties immediately because they don’t sync directly with MLSs, so you may miss out on new listings that other buyers have already seen – even a day can make a difference in a tight inventory market.

3. Write the strongest offer possible. Depending on the circumstances you need to be ready to write the best “on-paper” offer possible, especially in situations where there are multiple offers on a property. Of course, you may not be able to compete with some things (for example, if another buyer is a cash buyer or offers over asking price when you are not qualified to do so), but it is still important to make the offer look as good as it can. This is another reason to have a strong agent on your side – she or he will advise you of the best tactics after assessing the situation, the comparable sold properties, the market and speaking with the listing agent. Your offer still may not be chosen, but there is a chance the one that is chosen could fall through, so you want to be the next best.

4. Be Ready! Make sure you are accessible by phone/text and email, and that you are able to view properties as soon as possible once they list. If a property lists on a Thursday and it looks like a home that meets all your criteria, waiting until the weekend to view it may increase the competition. Even in cases where the seller wants to wait the weekend to evaluate offers, getting yours in first could put you in a better position.

5. Keep an open mind. Check out homes that you may not necessarily find appealing on line, or may not be in your preferred neighborhood. Sometimes buyers reject seeing a listed property, only to later realize that it could have been a great home for them. Pictures can be deceiving, and for the right price a home that needed something to make it “perfect” – like a little updating, could be a great home for you at the right price. The same goes for a home outside of your desired neighborhood.

Real estate information sites like Zillow, Trulia, Realtor.com and others have changed the real estate industry in many ways, most notably by their ability to provide instant information to consumers about home sales and statistics, neighborhood data, and other community information. When such sites start analyzing home value, however, the consumer is not getting accurate data in most cases, so beware and read on if you are a buyer or seller, or plan to be either in the future.

When such sites use estimates to tell potential homeowners or buyers what a home is worth, it is undoubtedly a poor attempt to create a Comparative Market Analysis – a tool which real estate agents use to assess value. Site valuation systems have created problems since inception and continue to do so.

The problem with such estimates is that in the majority of situations they are completely inaccurate. Why? Here are the reasons:

1.Â Third party site estimates only measure comparable sales in the immediate neighborhood, so if there are no recent sales or if there are sales in similar neighborhoods that make good comparable properties, those are not used to calculate the value of your home.

2.Â Third party site estimates cannot take into consideration key factors that are used in determining value, such as upgrades, view, location in the neighborhood (you may have a lot that is in a better area than the most recent sale, for example). They do not compare and contrast specific features of a particular property. If you put in a gorgeous built in BBQ and spa in your yard and upgraded the kitchen, bringing up the value, and the neighbor’s identical floorplan home with no upgrades just sold, your estimate will likely reflect the price of the neighbor’s home. This is a problem for buyers who are looking online for homes to possibly purchase.

3.Â Third party site disclaimers often are ignored:Â Most buyers and sellers using such tools view them as real estate gospel – or at least believe them to be accurate. Once they see such an estimate for a home they may be contemplating viewing in order to purchase, they may decide not to bother because according to the estimate it is priced too high. I get comments like this from potential buyers on my listings all the time.

Zillow, for example,Â specifically states on their site that “the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.” Not many people likely get to that page (you have to click on the question mark in the fine print when you hover over the asterisk by the “Zestiimate,” and then click for more information, which brings you to another page).

Real estate agents face many challenges because of these inaccurate analyses. Case in point: I have two listings on the same street; both nicely upgraded and about the same size and with similar views,Â but very different floorplans. Zillow has them listed with a $40,000 price difference. The model match of one of them (also nicely upgraded) is currently in escrow at a price that is not even close to the “Zestimate.” Because of this people viewing the other home, which shows a lower “Zestimate,” think that home is priced too high. But based on the upgrades and amenities and other factors the site cannot take into consideration, it is not.

The important lesson here for both buyers and sellers is to find an experienced real estate agent in the areas in which you are looking to buy or sell. Have that person prepare a detailed market analysis. Only then will you truly know the value of any property in your search area. Do not rely on third party websites that do not have the ability to take into consideration all the factors that an appraiser would look at when appraising a home – comparable prices, upgrades, amenities, location and view.

I decided to write this post because of the crazy antics I have seen in the real estate profession, especially lately. I want to preface this by saying that there are many wonderful, experienced and knowledgeable agents out there, but unfortunately there are even more who are not. Every week I see examples of contracts that are not properly executed, comments that are made that are incorrect, and even blatant misrepresentation of clients and agents giving legal advice (which is usually incorrect)…not to mention the plethora of ethical violations that happen on a regular basis.

If you frequent my blog you know that I always try to write things in a positive light, but I just don’t have a better way to say this: it is extremely beneficial for buyers and sellers to work with a broker who is also an attorney, OR if they want to work with their current agent, to have an attorney review their legal documents. I say this because it can help avoid litigation, and we all know that it is a litigious society in which we live.

Here are some of the things that I see happening all the time, which can be avoided by either working with a broker/attorney or having an attorney review your paperwork:

1. Agents drafting addenda to the contract without having it looked over by an attorney or broker (only attorneys can draft contracts, as they are trained to understand the legal ramifications. Since addenda are part of the contract they should not be drafted by people who are not attorneys…or in the LEAST their broker should review any drafted document before it becomes part of the contract).

3. Failure to fill out the contracts correctly (omitting information, checking the wrong boxes or writing in language that could create legalities)

4. Trying to negotiate tough situations that could have legal ramifications (including short sales and tricky resale situations) – lawyers are professionally trained negotiators (again, other real estate agents CAN be good negotiators, but if you have a difficult situation you may want to consider having an attorney get involved).

There are many other ethical violations that continue to inundate our profession, and most of them do not depend on whether or not one is an attorney; however, an attorney is usually better able to recognize an ethical violation, especially when one is cleverly couched. This is perhaps the thing I see most often and, sadly, many of the agents committing offenses have no idea they are doing so. What does this mean? The real estate profession as a whole NEEDS to have better training standards and stricter license and license renewal requirements.

Some people think that real estate agents do not work hard – I know this is not true. The skilled and good agents work their tails off. In fact, I work longer hours as a broker than I did when I practiced law. If you have an agent who is not working hard, than you are working with the wrong agent. Please check into an agent’s credentials before signing up to work with one. Check into not only their real estate industry experience, but their education and extra certifications. Don’t be afraid to ask!

If you have an experienced agent he or she can tell you if a situation arises that is beyond the scope of their training or abilities, and oftentimes their broker can intervene and help straighten things out. If you do not have an agent and are thinking of buying or selling, there are several broker/attorneys out there who possess skills many do not, and the best part is…you pay no extra money to avail yourself of their legal skills if your agent is also an attorney!

The bottom line is to be aware so you can make sureÂ you are getting the best representation possible when buying or selling real estate.

If you have been contemplating purchasing a home, whether it be a starter home, your dream home, investment property, or any other type of property, you may want to get serious now before it’s too late. Here are some reasons why it’s better to jump off that fence now rather than wait:

1. It is cheaper to buy rather than rent. The last time this was the cast was 1973.

2. Home affordability is better now than it has been in a long time. Prices now are discounted 61.5% from 1981, the last time they were at an all-time low.

3. New home inventory has hit a 50 year low, contributing to very low inventory levels, which are not expected to improve for 3-6 years. Between 1968 and 2008 there were at least 1 million homes built per year. With the new home inventory at such a low, we have a deficit of 900,000 homes a year (homes that are not being built), thus making inventory even lower.

4. One third of all closed escrows in 2011 were cash transactions (2012 numbers are likely higher). There is a lot of competition out there, and will continue to be as inventory and rates remain low.

5. Recent changes to lending laws will likely make getting a loan much harder. While the new laws afford protections to consumers, lenders will scrutinize applicants even more so now. Click here to read more about this.

6. Interest rates will rise. With low inventory and high demand, and with an improving economy, it is only a matter of time until the rates are raised. (In fact, they just went up slightly last week).

7. Foreclosures are decreasing. Lenders are vying away from foreclosures, opting for short sales – which are being appraised closer to comparative market value nowadays, making the chance of getting a “great deal” lower. Many federal and state programs are also helping underwater owners to refinance and stay in their homes, meaning less distressed inventory.

I recently came across a home that was for sale by owner. My client and I had been out looking at properties, and she later drove back through a neighborhood she particularly liked. She noticed a For Sale sign partially obscured on a home, which we had not noticed. I searched the internet for information about the home, but found nothing indicating it was for sale. I called the very nice owner, but when we finally connected my client had already flown back home and he did not want to cooperate with agents.

I know there are many agents out there who specifically seek out for sale by owner (or FSBO) properties, and many of them make it a priority to get those homes listed. But there are some big problems on both sides that need to be considered before hanging up a FSBO sign.

Issues Owners Must Consider

1. Exposure. As indicated in my example above, if you are going to sell your home it is extremely important to get exposure. The MLS is the number one place to showcase your listing, as thousands of property sites (where the buyers are looking) link to the MLS. Most active buyers have searches, oftentimes multiple searches, set up on agent sites and other house hunting sites like Zillow, Trulia and Redfin. If your home is not there, these buyers have NO idea it is for sale. In today’s market, where there is little inventory in most places, and where there ARE active buyers (and many multiple offer situations), it is simply silly not to have your home on the MLS.

If you still insist on trying to sell yourself, my best advice to you is to get your listing on the MLS. There are brokerages that will charge a small fee to do so, without doing any other work for you. It is well worth the expense.

2. Calls from LOTS of agents…who will want to know if you are willing too cooperate with them should they bring a buyer to your home. Most buyers DO work with agents, and if you are not willing to do so yourself you could be losing qualified buyers. An agent will not show your home if s/he will not get paid for making a sale and doing all the work involved in an escrow.

3. Unqualified buyer issues. If you do find buyers who are interested and not represented by an agent, you will be responsible for making sure they are qualified. This requires a lot of leg work, which most agents do before showing homes to their clients. You could take your home off the market for weeks assuming your buyers are qualified, only to find they are not. During that time you could have found other buyers, and then you will have to start all over.

4. Possibility of no showings, as many buyers are working with agents. This goes hand in hand with some of the above points.

5. Loads of paperwork and legal ramifications. If you are representing yourself in the sale of your home, you’d better be careful. You need to fill out a disclosure packet, and if you leave out crucial information it could come back to bite you down the road. An agent on your side is there to make sure you have filled out the disclosures correctly, and that all the paperwork is in order. Also important, if there ever is a legal problem down the road (and this is not a rare occurrence), it is nice to have the brokerage on your side to help you.

6. Other warnings. It is very important to note that if you are delinquent in your mortgage and are trying to do a FSBO, BEWARE. This is not something you should attempt on your own. You need to find a local agent who is experienced in delinquent properties so that you can discuss your options. If a short sale is an option I advise you to not even contemplate attempting one on your own. There are people who are experienced with short sales who can help you, providing a much stronger chance of approval.

Issues Buyers Must Consider When Purchasing a FSBO

1. No representation = Possible Legal issues. As discussed above, if you are a buyer purchasing a FSBO without an agent to represent you, you need to be very careful. If the owners do not fill out paperwork correctly and fail to disclose something, which later becomes an issue, you could be stuck with a legal dilemma. If you have an agent on your side to review all documentation and make sure you are legally protected, you will be in a much better position.

2. Escrow is a neutral party. It is important to know that the escrow officer can help you in some ways, telling you what paperwork you need. But keep in mind that escrow is a neutral party, and cannot give you any legal advice – they do not represent the interests of any single party to the sale.

3. Pricing. Make sure, if you are purchasing a FSBO property, that you have a copy of recent sold comparables in the area, and that you understand the prices and reasons for them. You obviously do not want to overpay for a home. This is not something you have to have an agent to do, but local area agents are usually very in touch with area sales and could explain to you why a particular home sold for more or less than the comps, and in doing so figure out the “right” price for a home you are thinking of purchasing. Most FSBO owners are savvy and know the neighborhood comps, but it is still important to study them yourself, especially if you are purchasing the property with a loan – lender scrutiny is rigid, and if the home doesn’t fit in with the recent comparables your loan will be denied (unless of course you renegotiate price with the seller at that point…something you need to be prepared to do well).

4. Must-Do’s in Buying FSBOs. If you are a buyer contemplating a FSBO purchase, it is imperative you do the following: get pre-approved with a lender first, get a good comparable market analysis – CMA (which you may be able to get from a local area agent even though they are not representing you), make sure you connect with escrow to understand what paperwork is needed, and have a home inspection.

Do you know the difference between a pre-qualification and a preapproval for a mortgage? Surprisingly, many buyers – and even many agents – do not. It is important to understand the difference before you prepare to search for a property.

Pre-Qualification: When a buyer gets pre-qualified for a mortgage, it means that s/he has submitted information to the lender regarding employment/earnings and assets. The borrower discloses what amount s/he has for a downpayment, and provides the lender with a credit score. Not much digging is done to verify the information, and pre-qual letters are fairly easy to obtain.

Some lenders require proof of funds to be shown (which can be done by submitting a bank/securities statement), and pre-qualification letters state that a loan will be granted based on the borrower’s ability to satisfy the conditions – they are not a guaranty for a loan. These letters are the most common types presented with offers, as many banks can evaluate a borrower, but cannot truly evaluate whether s/he can purchase a particular property until they have a fully executed contract and related documents.

Preapproval: Getting preapproved means that a lender took the time to look at a potential buyer’s documentation of income and assets. Credit scores are pulled, and the buyer is examined more thoroughly. Borrowers must provide 1099’s, W2’s, account statements, employment stubs and other information if necessary. Once the preapproval is drafted it is still not a guaranty that the borrower will get a loan. There are other conditions that must be met, which will become more clear once a property is identified for purchase.

No matter which type of letter is obtained, it is important to obtain one before writing an offer so that the buyer looks strong in the presentation. Many listing agents will not respond to offers unless there is a preapproval or pre-qualification letter submitted simultaneously.

Interestingly, most listing agents do not scrutinize whether a borrower submits a preapproval or pre-qualification letter (and I have found that many do not even know the difference), but many do ask that proof of funds (funds necessary to cover any downpayment) be submitted with an offer and the letter. None of these things provide iron-clad proof that the buyer will qualify for the loan, but they do reassure the seller and listing agent that the potential buyer at least looks positive on paper.

It is important in today’s market – where we are seeing many properties obtaining multiple offers – to look as strong as possible. Taking the extra time at the start to obtain a preapproval is a smart decision that could mean the difference between getting your offer accepted over that of another buyer.

If you are considering purchasing a home, it is important to consult with a mortgage professional right away, so that you can figure out for how much of a loan you will qualify. This will allow you and your real estate agent to focus on properties in the right price range, providing a better chance that you will be able to successfully qualify for a loan when you find the right home.

There is a strange phenomenon occurring in San Diego this Spring season – there are less homes for sale than anticipated. It is not uncommon for buyers to find themselves in multiple offer situations, being outbid and outshone by others, including cash investors. Will we see more inventory as we head into summer, and what is keeping sellers from selling? Let’s take a look at some of the possibilities.

1. Negative Equity Rising. According to an article in the Wall Street Journal, economists believe that as negative equity rises, people are less likely to list their homes because more foreclosures become a possibility, meaning property values go down. If sellers cannot get more for their homes, they will be unable to have the money needed for downpayments to purchase new homes, and to pay all the fees associated with selling. Thus, many are waiting for the market to go up before selling. Some of those who have to sell end up short selling their homes, which does not help neighborhood market values.

2. Fear. Many people are still afraid that the economy has not healed, and that the housing market has still not hit the “bottom.” To this I reiterate how important it is to focus on your own specific housing market, not the national reports. For instance, here in San Diego many communities are currently “seller’s markets” (for the first time in a long time) when it comes to condos, townhomes and attached homes. Multiple offer situations are common, and prices are rising. Many buyers are frustrated – they are making offers and are qualified for loans, but they are outbid. So, it is important to speak with a knowledgeable area agent to understand your specific market.

3. Election? Being an election year, many people feel that there will be changes within the economy and housing market if a new administration is elected, and those changes create fear and uncertainty. Some sellers choose to wait and see the results, so they can try to analyze where the market may go from that point. Again, it is imperative to really understand your local market, and not simply wait to see what might happen in the future. If you are in a market that has risen, and there is great demand there, you may be in the driver’s seat as a seller.

4. Investors in the market. There are many investors out there snatching up properties, especially those in the under-$300,000 price range. A large percentage of these investors pay cash, and their offers outshine those from buyers who need to get a loan, as they are easier to close. It is not uncommon to see buyers being outbid by these investors, and there is a lot of frustration amongst many buyers today. The only thing a buyer can do is be as well qualified as possible, and appeal to the sellers via a handwritten letter, making the sale feel more personal. This won’t always help, but I have my buyers write them, as it makes things more personal.

Most importantly, buyers and sellers need to understand the following: if somehow we knew that the market was going to improve from here on out, that improvement will be gradual – not a crazy spike like in the early 2000’s. Annual price increases of several percentage points a year will be likely. Sellers need to figure out the difference in waiting to make a few thousand dollars, compared to paying the mortgage, insurance, taxes and maintenance over that period of time. Buyers need to consider that when the market starts to correct, it is likely that interest rates will rise as well – so they could potentially be hit with higher prices and rates. There are buyers out there ready and waiting for homes to be listed, so speak with a qualified agent about your options if you are thinking of selling your home.

In the states that allow it, dual agency (where the agent/broker represents both the buyer and seller in a single transaction) is something many agents may welcome when they list a property… Â after all, it makes for a double paycheck. But is it truly advantageous to the buyer and seller to work with the same agent, and what are the potential legal ramifications in doing so?

All agents have a fiduciary duty to their clients. This means that we have a duty to act in the best interests of every client.Â As a listing agent the duty is to market the clientâ€™s home in the best way possible, and to negotiate the best price possible for the client. The agent is normally privy to quite a bit of information, such as the lowest price a seller will accept for the sale of his property, or financial information that explains why the seller cannot pay for repairs.

A buyerâ€™s agent also is privy to information about the buyer, such as the buyerâ€™s bottom line as to how much they will or can afford to pay for the home, or what they may need to ask of the seller to make the sale come to fruition.

An agent who represents both sides of a home sale will undoubtedly possess information that could be conflicting when it comes to negotiating price or repair issues. How then does the agent properly represent both parties? In a lawsuit an attorney cannot represent both the plaintiff and the defendantâ€”clearly it would be impossible to act in the best interests of both parties. So what makes a real estate transaction any different, and what are the legal ramifications of dual agency should something go wrong?

Although states like California require paperwork acknowledging dual agency (and the potential for such) for every sale, the potential for liability down the road still exists. If an agent is found to have breached his fiduciary duty to the client the contract can be rescinded, the parties restored to their positions before entering into the contract (including returning all deposits to the buyer), and the home can be returned to the seller. Any commissions paid to the agent/broker can be ordered returned, and if the party she represented suffered damages the brokerage or agent can be help monetarily responsible for those damages.

Dual agency disclosures are not completely fool-proof in preventing a lawsuit. This is an issue that has drawn much debate from brokers, attorneys and others in the industry. It is something we need to continue to explore and be aware of within the real estate industry.

It is official – Congress has voted to bring back the higher FHA loan limits. The measure, once signed by the President, will push the FHA conforming loan limit in the highest priced real estate markets (like California and New York) to $729,750 through 2013. The current limits cap at $625,500 in these markets; they were cut back as of October 1, because of Congress’ failure to extend them.

The limits had been temporarily raised for FHA and Fannie and Freddie during the financial crisis, when it became more difficult to obtain loans from banks.What does this mean for buyers? In the higher priced markets, it means buyers can get higher loans with lower downpayments, a move that prevents them from being locked out of certain neighborhoods due to lack of extra cash.

The new extension applies only to FHA loans, not Fannie and Freddie. FHA, which is a mortgage insurer (not a lender), provides mortgage insurance to buyers who do not have large enough downpayments to obtain prime loans. Borrowers with FHA loans can put as little as 3.5% down on the purchase of a home.